California Real Estate Practice Exam

Which of the following lenders would NOT be approved (respectively) by VA or FHA?

1. Federal bank

2. Institutional lender

3. Insurance company

4. Private lender

The correct answer is: Federal bank

The correct choice indicates that a federal bank would not be approved by VA or FHA for certain types of loans. VA (Veterans Affairs) and FHA (Federal Housing Administration) loans are specifically designed to support specific groups such as veterans and low-to-moderate-income homebuyers. They have established criteria to regulate who can lend their funds under their guidelines. While federal banks primarily focus on traditional mortgage lending, they often operate outside the scope of FHA and VA's specific authorization for certain lending practices and the customized loan programs they offer. Conversely, institutional lenders, insurance companies, and private lenders are typically more flexible and can often navigate the requirements of VA and FHA loans, making them more likely to be approved under those particular lending programs. Hence, the combination of federal regulations and the operating procedures of federal banks contributes to the reasoning behind why a federal bank may not be considered an approved lender by VA or FHA.